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The Liberty Dollar was backed by silver and issued in silver one-ounce rounds, paper currency, and an electronic "e-Liberty Dollar" version.[1] There was a slight problem with it: the Liberty Dollar was originally pegged at $10/ounce when it was introduced during the late 1990s when silver was trading for under $5. When the price of silver went over $10, von Nothaus simply cut the amount of silver backing each dollar by half, issued new coins and bills pegged at $20 an ounce, and offered to trade older $10/ounce Liberty Dollar paper currency and silver rounds for an equivalent number of the new issue, making it appear to double their money. Silver later traded as high as $36 an ounce and as of this writing is still over $20.[2]

One of the claims behind the Liberty Dollar was to promote a return to silver-backed currency. Yet paper Liberty Dollars were only redeemable (via NORFED) for Liberty Dollar silver rounds, and if one wanted to then cash those in for U.S. dollars they would need to do so at a coin shop, where they would receive only the current spot price worth of silver. What this effectively meant was somebody who received a "$10" Liberty Dollar round in the late 1990s and tried to sell it at a coin shop would find it was only worth $5 (at the time) in silver, and the same in the mid-2000s when a "$20" Liberty Dollar was only worth about $11 in silver. Of course, one could argue that those "$10" and "$20" rounds later became worth $36 each, but that same silver could have been purchased at much less than von Nothaus' inflated prices. Forbes summed it up nicely in an article panning the Liberty Dollar concept: "How to lose half your dough? Trade it for silver."[3] Viewed in this way the Liberty Dollar started to look a lot less like a movement for a return to silver-backed currency, and more like a scam to get people to buy silver at a 100% markup. Some libertarians were rightfully also dubious about the concept, noting that Liberty Dollar's distribution was set up in the same manner as a multi-level marketing company and if you want to trade in silver, use the current spot price and not an arbitrarily designated value.

There was another slight problem with it: few legitimate businesses accepted it. Indeed, much of the sale of Liberty Dollars turned out to be to coin collectors, and the largest secondary market for Liberty Dollars is people selling the Liberty Dollars they were earlier suckered into buying to collectors on eBay. Perhaps realizing this, von Nothaus began introducing many variations and commemorative Liberty Dollar silver rounds: one of them honoring Ron Paul, another opposing the Iraq War, and another honoring chiropractors.

The United States Mint issued a consumer warning about the "Liberty Dollars," stating they were "not genuine United States Mint bullion coins and they are not legal tender," adding, "...prosecutors with the Department of Justice have determined that the use of these gold and silver NORFED 'Liberty Dollar' medallions as circulating money is a Federal crime."[4]

An even bigger problem: U.S. federal law, for some reason, allows for local alternative currencies to circulate (the Ithaca, New York "Ithaca Hour" is one such currency), but prohibits alternative currencies intended to circulate nationally if they are misrepresented as legal tender.[5] Bartering using silver rounds is also legal (some of anarcho-capitalistfringe do this) as long as taxes are paid on it as with any other income, but the Liberty Dollar silver rounds were designed in such a way as to mimic real U.S.-minted coins, right down to an image of Liberty on the face of the coin and a dollar value of $10 or $20 on it. This caused several cases of confusion when store clerks accepted a Liberty Dollar $20 silver round thinking it was legal tender, then finding it wasn't and finding it was only worth half that in silver. For this reason, the FBI, after repeated warnings that the Liberty Dollar as currently minted was illegal, raided the Liberty Dollar headquarters in November 2007. Much of their mintage stored at their Evansville, Indiana headquarters was confiscated along with computers and files. Von Nothaus was later found guilty of counterfeiting.[6] Liberty Dollars has a pending lawsuit seeking the return of the confiscated items, which has not yet gone to trial.

Bernard von Nothaus "retired" from Liberty Dollars in October 2008 to found the "Free Marijuana Church" in Hawaii.[7] The Liberty Dollar website is no longer online, and anyone who had any electronic e-Liberty Dollars is basically SOL since they vanished when the website went down.[8]

↑Current Federal regulations allow local currencies to operate as long as they are redeemable at face value with US Dollars, are reported as taxable income, are not designed to be confused with or mistaken for US currency, and are not issued in denominations smaller than $1.